Case Law Summaries

Spencer Savings Bank, SLA v. Shaw

MORTGAGES; FORECLOSURE; ATTORNEYS FEES — New Jersey’s Court Rules and its residential Fair Foreclosure Act permit a lender to recover its attorney’s fees when it actually files a foreclosure complaint, but it does not allow it to recover for fees incurred prior to filing the foreclosure complaint.

Borrowers fell behind on their monthly mortgage payments. As required by the Fair Foreclosure Act, their bank first sent them a written notice of intention to foreclose. The notice provided that if the borrowers did not pay the amount due within thirty days, the bank would accelerate the loan and initiate foreclosure proceedings. The notice also advised the borrowers that they could cure the default after the date set forth in the notice at any time before its entry of a foreclosure judgment or order of redemption, but that they would be responsible for the bank’s court costs and attorneys’ fees incurred in the foreclosure proceedings. This was consistent with the court rules. The bank also demanded that the borrowers, in addition to the past due payments, pay the bank’s costs for a title report, inspection report, and appraisal obtained when its borrowers went into default and pay the bank’s attorney’s fees. When the borrowers refused to pay those costs, the bank filed a foreclosure complaint. In response, the borrowers argued that the New Jersey Fair Foreclosure Act does not permit a bank to recoup attorney’s fees and costs incurred before a foreclosure complaint is filed. They also argued that the bank should not have initiated foreclosure since they, the borrowers, had cured their default by paying the past due debt prior to the bank’s filing of the complaint. The lower court found that the Fair Foreclosure Act provides that, upon receipt of a notice of intention to foreclose, a borrower wishing to cure the default must pay all sums that would have been due in the absence of a default. It also found that the only sums due were the monthly payments and not for the bank’s investigative costs and expenses. In doing so, the lower court rejected the bank’s argument that the Fair Foreclosure Act permitted it to recoup those fees to the same extent as the statute allowed it to recover court costs, if any, and attorney’s fees in an amount not to exceed the amount permitted by Court Rules.

The lower court found, and the Appellate Division agreed, that the costs the bank sought to recoup were neither attorney’s fees nor costs. In addition, they each held that the legislature’s intent was that a borrower would be required to pay attorneys’ fees only if they were associated with court costs, and only upon filing of a foreclosure complaint. The Appellate Division also noted that the notice of intention to foreclose advised the borrowers that they would be responsible for attorneys’ fees incurred in the initiation of foreclosure proceedings. Since the fees the bank was seeking to collect were incurred after the date of the notice, but before the filing of a foreclosure complaint, the bank was not entitled to collect them. Lastly, the Court found that the Court Rules permit a bank to recover its attorney’s fees when it actually files a foreclosure complaint, but does not allow it to recover for fees incurred prior to filing a foreclosure complaint.